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Paradigm Shifts: The COVID-19 Crisis In The Light Of The 1929 Great Crash And The 2008 Financial Crisis

Professor of comparative politics, Gerassimos Moschonas, analyzes similarities and differences between major crises of the past and the coronavirus pandemic.

Major economic crises are perceived as cataclysmic events that bring about significant changes. It is not surprising, then, that in the current COVID-19 crisis important scholars, pundits, and politicians have expressed the view that the ensuing "aftermath" shall be different from the "past". Everything –or a lot– is going to change.1

This prevalent perception of economic crises (the crisis as a trigger of significant changes) has spawned from the Great Depression. The Great Crash did, indeed, bring about radical changes: it had a strong impact on the relations between the state, markets, and politics, and deeply influenced economic and political ideologies, leading to transformations whose effects can be traced in western societies until at least the 1970s.The transformative character of the post-1929 period made it the archetype of modern economic crises.

However, this was hardly the case in the aftermath of the 2008 crisis (and its extension as a debt crisis in the European Union). In spite of the great expectations that the rampant capitalism model would be rectified, the economic and political consequences of the crisis were "surprisingly conservative".2 The post-crisis reforms were primarily "sectoral", largely focused on the financial sector and aimed at shaping an improved, safer and less toxic version of the financial architecture of the pre-2007 period.3  The 2008 crisis –the most important one since the interwar years and the first major one of a new generation of crises– has demonstrated that huge crises might not turn out to be such determining game changers, as was the 1929 crisis.

The limited extent of the consequences of the 2008 crisis is quite surprising. The scale of the systemic threat and the reward of moral hazard -use of public funds, in the name of a broader public interest, to bail out the private players who caused great harm to the common good –would warrant more profound changes. What prevented such changes from happening? Why did the 1929 crisis mould a new era worldwide, while the 2008 crisis only brought about hardly discernible changes?

Our hypothesis is that the depth and length of the recession are the two most important factors that determine the extent of changes in the post-crisis period. The severity and length of the Great Depression contributed to the subsequent changes in the economic and political paradigm. Conversely, the effective containment of the recession shock after 2008 was instrumental in preserving the status quo, in spite of any resulting minor changes.

In this context, however, the response to the two economic crises by public authorities (central banks and governments) was crucial, inasmuch as not only did it have an impact on the duration and intensity of the recession dynamics but –ultimately– it also expanded (1929) or limited (2008) the space for ideological novelty which could be taken up by status quo opponents.

Let us have a look at the facts and their logic.

Depth and length of the recession, and paradigm shift

The "good" responses to the 1929 Crash came in rather late. They were not implemented until 1932 (Sweden) and 1933 (in the context of the New Deal) – and then, again, not consistently (new recession in the United States in 1937). There is a consensus among experts that the mistakes and shortfalls in monetary and fiscal policies in the early 1930s aggravated the effects of the depression and fuelled the escalation of the disaster. As Eichengreen and Temin eloquently pointed out, after 1929, "central bankers continued to kick the world economy while it was down until it lost consciousness".4

The huge economic and social cost of the interwar crisis, its great length, the development of a vicious circle of (currency, banking, stock exchange, political) sub-crises within the crisis, the absence of any visible way out of the crisis, and the absolute need for "something to happen" all helped alternative ideas and alternative policy proposals emerge, mature and converge. However, policies require politics.5 The numerous twists and turns of this long and extraordinary crisis combined to prompt both old and nascent players (leaders, political parties, heterodox economists, trade unions) to either press for big change or become themselves its actors. The depth and duration of the economic contraction bred a favorable setting for the emergence and consolidation of heretical views and unorthodox, old and new, actors. One indirect participant in the renewal wave were "the masses". Mass discontent played a vital role: "Where the interventionists were willing to rely on mass support, they could find the mass support needed for significant departures from orthodoxy".6 The protraction of the crisis expanded the space for political struggle, ideological novelty and policy change.

In stark contrast, in the 2008 crisis, the much greater efficacy of monetary and fiscal interventions, with the exception of the very poor handling of the European debt crisis, dampened the recession shock and facilitated a swifter return to recovery. During the years 2007-2009, for a brief moment, "the whole world became Keynesian again», as it was aptly put by Yannis Kitromilides.7 Moreover, there were two other factors which helped moderate the economic and social cost of the crisis: the much more systematic –compared to the interwar period– bank bailouts (which protected the huge mass of savers and the extremely sensitive to any downturn risk modern middle classes8) and the presence of a strong welfare state. By reducing the severity, length, and cost of the 2008 crisis, these factors, most likely, moderated or released the pressure for major economic and political changes. There was no longer much room for the consolidation of heretical views and unorthodox players. Not surprisingly, there was profuse social and political frustration leading to the extensive electoral punishment of governments in office.9  Social frustration, alternation in government, and reinforcement of "peripheral" political parties, however, did not bring about any significant changes in economic philosophy and politics. There was no paradigm shift.

The post-2010 extremely problematic management of the debt crisis by the European Union confirms the hypothesis that the severity of the crisis is an indirect yet significant factor of political renewal. The "austerity mania" of the European institutions has been conducive to making the crisis deeper and longer. Thus, the vigor and length of the crisis in the southern European countries paved the way for the development of alternative ideas and the emergence of anti-austerity coalitions and new political actors (populist and non-populist, systemic and anti-systemic). In Greece (but in Greece only), where the scope of the crisis fully matched the 1929-1933 disaster, the emblematic case of SYRIZA has shown how the protracted plummeting of the economy favors political change.

The response to a crisis is so important that it becomes –technically– an integral part of the dynamics of the crisis and a component of its very nature. In particular, it determines to a large extent the duration and depth of the recession dynamics. As a result, the difference in the length and depth of the two crises in one case expanded (1929) and in the other restricted (2008) the marketplace of ideas and, hence, the space for ideological and policy novelty.

1929 or 2008? The COVID-19 crisis

The factors which heavily affected the dynamics of the 2008 crisis were: improved know-how in addressing the crisis, better protection for the huge number of savers and the middle classes, the welfare state acting as stabilizer. These factors were not the product of conjuncture. They shall be present and active in subsequent crises. Moreover, they render the 2008 crisis distinct from all other major crises of the past and, from a cognitive perspective (i.e., from the perspective of its usefulness in the understanding of the parameters of the crisis that is currently in progress), more important than the 1929 crisis.

Thus, the predominant tendency to compare the COVID-19 crisis with the 1929 crisis, rather than the 2008 one, is quite surprising. In fact, it is this new era crisis –much more than the Great Crash­– that should actually serve as a benchmark.

The management of the economic dimension of the COVID-19 crisis demonstrates the importance of the 2008 crisis as a model. In order to address the economic impact of the pandemic, public authorities are taking extremely bold steps and are adopting the 2008 crisis management model. In fact, their actions are even more daring than those seen in 2008. In particular, the United States, Germany, the United Kingdom, but also the structurally conservative European Union (which has turned low expectations to a cultural and policy mentalité), have adopted aggressive and prompt expansionary fiscal and monetary policies.10 If central banks and governments manage to weather the storm with their unprecedented interventions, just as they did in 2008 (with their equally, at the time, "unprecedented interventions"11), then they will considerably restrict the potential for the development of alternative economic and political ideologies. The scope for radical players, new elites, and innovative post-crisis policies will narrow down - even if the anger against the governments that have failed to protect their citizens from the coronavirus disease and from poverty would enhance the ability of challengers to defeat incumbents.

However, the key to understanding the long-term changes that the COVID-19 crisis will or will not bring is, as was the case with previous crises, the length and depth of the recession. The uncertainties surrounding health developments render the recession cycle unpredictable. Our hypothesis, however, is that only the third of the scenarios envisaged by economists –the nightmarish scenario of a long and deep recession– could have a substantial impact on the relations between the state and the markets or significant influence on political ideologies. In that case, the already enhanced désir d'Etat will become stronger and left-wing ideas will probably re-emerge in the long durée. In all other scenarios, although the current global slump looks deeper than anticipated and worse than the 2007-2009 one, there is little likelihood of a real paradigm shift. The fact that the outbreak of the current crisis was not caused by a toxic sector or institution of the economic system (and there are many such sectors), as was the case in 1929 and in 2008, renders any major change even less likely. Moreover, the lack of attractive ideological and policy alternatives (and of an attractive unconventional political personnel) does not favor a transformative rupture analogous to the one of 1929. Anti-capitalist solutions or the vision of a "post-growth" or "degrowth" capitalism are only entertained by minority trends or actors. A drastic shift in the state-market relations and a renewal of the economic and political ideologies could only come about if the crisis lasts “too long”.

 Not everything is equally possible

Εconomic crises are dramatic events that differ –and will always differ– significantly one from another. In the 1930s, new perceptions and policies evolved against the gloomy backdrop of the Great Depression and the rise of fascism and led to the partial refoundation of the European ideological and policy landscape. The new culture was post-liberal. In contrast, the 2007-2009 financial crisis only brought very limited lasting change. The COVID economic crisis will also bring changes. It is possible that this chameleon dualism (neoliberal policies in normal times, powerful and massive state intervention in times of crisis) will weaken the already destabilized, but always strong, liberal mindset of economic ideas. Two major economic crises over a period of twelve years are too many to leave the functioning of economies and the value systems of societies unaffected. Today's large government deficits and money-printing strategies legitimize economic policy tools derived from a matrix of more "statist" or social-democratic economic priorities. The development of a new balance between social-democratic preferences and neoliberal core values ​​and ideas is possible in the post-COVID-19 period. But given the resilience of the structures, actors and norms of the globalized economic system, it is not certain that it will happen. A major ideological and policy restructuring is however much less likely.

Though everything is possible, not everything is equally possible – this is what the preceding analysis argues. Major economic crises, though experienced as collective moments of shock and as turning points, are no longer such big game changers as was the catastrophic crisis of 1929, even if this might still be possible under certain circumstances. In all likelihood, emergency Keynesianism shall once again rescue –as it did in 2008-9– economic (neo-) liberalism.

 *Gerassimos Moschonas is Professor of Comparative Politics at the Department of Political Science and History, Panteion University of Social and Political Sciences, Athens.


1. This contribution is a short and adapted version of the paper: Gerassimos Moschonas, "The coronavirus crisis in the light of the past: the 1929 Crash, the 2008 crisis and their consequences in the relations between state and markets", diaNEIsis, June 2020, 30 pages (in Greek). Available at: The present English version is a republication, after making several changes, of Gerassimos Moschonas, "Paradigm shifts: The COVID-19 crisis in the light of the Great Crash and the 2008 financial Crisis", IN DEPTH – Volume 17 Issue 4 – July 2020, pp.22-26, Cyprus Center For European and International Affairs, University of Nicosia (available at:

2. Kahler, Miles and Lake, David, 2013, "Introduction: Anatomy of Crisis: The Great Recession and Political Change" in Kahler, Miles, and Lake, David (eds), Politics in the New Hard Times, The Great Recession in comparative perspective. Ithaca and London: Cornell University Press, p.23.

3. Moschonas, Gerassimos "The coronavirus crisis in the light of the past: the 1929 Crash, the 2008 crisis and their consequences in the relations between state and markets", diaNEOsis, op.cit., pp. 14-16.

4. Eichengreen, Barry and Temin, Peter, 1997, The Gold Standard and the Great Depression, National Bureau of Economic Research, Working Paper 6060, Cambridge, p.2.

5. For explaining economic policy choices by linking policy outcomes to politics see the seminal work of Peter Gourevitch,1986, Politics in Hard Times. Comparative Responses to International Economic Crises. Ithaca, NY: Cornell University Press.

6. Gourevitch 1986, op.cit., p.16. For the key policy choices, full of internal tensions, which drove social democratic positions towards "policy maturity" in the interwar period see Gerassimos Moschonas, 2018, "European Social Democracy, Communism and the Erfurtian Model." in Outhwaite, William και Turner, Stephen (eds.), The SAGE Handbook of Political Sociology. London: Sage, pp. 527-531and 542-544.

7. Kitromilides, Yiannis, 2012, "The 1929 Crash and the Great Recession of 2008. Why the Policy Response Is Different but Not Different Enough", Challenge, Vol. 55, No. 1, p.8.

8. The "mass financialized wealth", largely linked to the rising wealth of the middle classes, has decisively shaped the trend in favor of extensive bailouts during crises. The rising wealth of the middle classes has generated great expectations that their wealth will be protected by governments (Chwieroth, Jeffrey and Andrew Walter, "The wealth effect: The middle class and the changing politics of banking crises", 3 June 2019  ( Thus, crisis policy interventions have become more extensive and costly, even if this meant rewarding moral hazard and, subsequently, allowing the economic cost to be borne by taxpayers, including the lower classes.

9. Chwieroth, Jeffrey and Walter, Andrew, 2010, "Financial crises and political turnover: a long run panoramic view". Paper presented at the annual meeting of the International Political Economy Society, Harvard University. November 12-13, chart 1, p.3.

10. The stimulus package adopted by the European Council (21-7-2020) is much less ambitious compared to the proposal of the European Commission (Next Generation EU, 27-5-2020), as it relies less on grants and reinforces the loans-based approach; it is nevertheless an unprecedented, for the low EU standards, investment program, which combines some form of one-off common debt issuance with cross-border transfers. See also: Lapavitsas, Costas, Lluís Torrens, Sergi Cutillas, and Pablo Cotarelo, "Confronting the Coronavirus Crisis:  A case for a Pandemic Basic Income with evidence from Spain" 11 June 2020. Available at:

11. Kahler, Miles, 2013, "Economic Crisis and Global Governance: The Stability of a Globalized World" in Kahler, Miles, and Lake, David (eds), Politics in the New Hard Times, The Great Recession in comparative perspective. Ithaca and London: Cornell University Press, p. 44.